This article is written by Srinithi Vasudevan, pursuing Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.

Introduction

What is drafting?

Drafting is the act of preparing a legal document which may include agreements, contracts, notices, etc. The purpose of legal drafting is to seek and present effectively the facts and law that can impact the parties to a document. For drafting legal documents it is imperative to have the following:

• The skills required for drafting,
• The knowledge of the facts and law so as to put the facts in a systematized sequence to give a clear projection of the legal status, 
• Privileges, 
• Rights and duties of the parties and obligations arising out of mutual understanding,
• Terms and conditions, 
• Breaches and remedies etc., 

All these are drafted in a self-content or self-explanatory form where it is clear and without any vagueness or doubtful meaning.

What is a lease agreement?

Now, a lease can be defined as a contract where a party is the owner of an asset (lessor) provides the asset (leased property) for use to another person (lessee) at a consideration (rent), either fixed or dependent on any variables, for a certain period (lease period), either fixed or flexible, with an understanding that at the end of such period, the asset, subject to the set in preferences of the lease, will either be returned to the lessor or disposed of as per the lessor’s instructions.

Lease agreement between a bank and an owner

A bank may take a property in lease for many reasons like; for Atm installation, for setup of a new branch, branch member’s residential quarters etc. because in Indian conditions, branch banking structure is the most suitable and preferred structure of banking than the other banking structures. Generally, a property is classified into two categories:

• Residential property

Any land, plot or area of land including any building used primarily or intended to be used for owner or tenant accommodation constitutes residential property. Single-family housing, as well as multifamily units, can be constructed on residential land to qualify as residential property.

• Commercial property

Commercial property is buildings and land that are intended for profit-generating activities rather than regular residential purposes, it may include retail shops, banks, industrial complexes, office buildings etc.

Leasing in commercial and residential properties is a different thing. While renting a house involves minimal expenses, commercial renting includes not only heavy operational overheads but high vacancy risks. Also, not every commercial space can be taken as bank space. Generally, when a bank needs rental space, that specific bank publishes the advertisement with property requirements that the bank is looking for, or you will need to get in touch with the Regional Manager of the concerned bank. If your property meets the criteria then you can participate by applying your application with the property documents such as a sale deed, a title deed, NOC etc., to the concerned bank. The bank will collect the application and will announce the shortlisted applicant through advertisement. Finally, after all the necessary scrutinization, one person is selected and a lease agreement between that person and the bank is made.

Difference between lease and license agreement

Lease agreement

A lessee has exclusive possession, he can transfer his interest or right in the property to anyone. Unless specified, death does not terminate a lease agreement and unless mentioned in the agreement, sub-tenancy can be created by the lessee to the agreement. A lease agreement is governed by the Rent Control Act of that particular state where the agreement is made. Only the small cause court has the jurisdiction to handle the disputes of a lease agreement.

Licence agreement

However, in the case of a licensee, there is no transfer of interest or right in the property to anyone. It is not inheritable. Creation of sub-tenancy cannot be created and death does terminate the license agreement. A licence agreement is governed by the Indian Easement Act, 1882. Any court can handle and has jurisdiction over the matters of the license agreement.

Some of the important clauses to a lease agreement

A well-drafted lease agreement should create certain rights and liabilities between the parties to the agreement. Therefore it is essential that the agreement should be detailed and address all the issues that may come in the future, including dispute resolution. Therefore, some of the important clauses to a lease agreement are as follows:

1. Introductory clause

The introductory clause of an agreement mainly deals with the title, name and details of the lessor and the lessee, definitions of the terms which are used in the agreement and are necessary for the agreement, address of the licensed property including the description of the house/property and surrounding area of the property, lastly the summary describing why the contract has come into force. These clauses are commonly used in all contract agreements.

2. Term of tenancy

Every rental document should state the term of the tenancy. Leases usually last a year. It is the decision of the owner whether to make the agreement flexible by not mentioning the specific period or state that the agreement will be in force for a specific period from the date of execution. The agreements must always contain the date of execution. By stating the term of the tenancy it is ensured that both the parties to the agreement are safe, because, the lessee cannot stay more than the specified period and the lessor cannot expel the lessee before the specified period ends.

3. Rent

The consideration paid by the lessee to the lessor for utilising the licensed property is called the rent. The lease agreement should specify the amount of rent, time of payment, acceptable payment methods, whether late fees will be due if rent is not paid on time, mode of payment for late fees, the amount of the fee and whether there is any grace period, and any charges if a rent cheque bounces. Sometimes, the agreements may be made that there will be an increase of rent amount paid by a certain percentage after a specific period or certain intervals of time. This increase in rent is called escalation.

4. Payment of security deposit

Security deposit is the amount received by the lessor from the lessee at the beginning of the agreement, this is taken to dissuade the lessee from causing damage to the licensed property or leaving the licensed premises before the notice period without paying the rent for that period. It should be noted that the security deposit will be returned by the lessor to the lessee at the time of termination of the agreement.

All the agreements should specify the amount of security deposit to be given by the lessee to the lessor at the time of execution of the agreement and the mode of payment of the security deposit.

5. Maintenance charges

Here, the maintenance charges which should be transferred to the society or complex for the common area, electricity, water, etc., are conferred. The agreement should clearly state who is going to pay the maintenance charge either the lessor or the lessee, to whom it should be paid, on which date it should be paid etc.

6. Use

The agreement should clearly mention the usage of the given property. A property can be either used as residential property or commercial property. Even in the case of a lease for a bank and an owner, it can either be for residential use like branch member’s residential quarters or it can be for commercial purposes like for ATM installation, for setup of a new branch. Therefore, mentioning the usage of the property is very important for the lessor because, the lessee, if not mentioned can use it either way which may cause a dispute in the future.

7. Alteration

This clause specifies the alterations made to the property. Alterations can include changing any furniture already fixed to alteration of the whole property (like altering the room size) etc. It should always be mentioned in the agreement if any alterations can be made in the property, till to what extent the alteration can be made, who will bear the cost of alteration, mode of payment, it should state the terms and conditions for using the common facilities. Where admittedly there is unauthorized construction by a lessee or by any other person on Government land which is public premises and such person is in unauthorized occupation thereof.  This has been held in the case of Express Newspapers Pvt. Ltd. & Ors vs Union Of India & Ors.

8. Notice period

In this clause, the agreement should specify the details about the period of time that should be given by the lessee to the lessor in case, if the lessee vacates the property before the termination of the agreement. It should also state the penalty in case of violation of this clause. Generally, if the lessee violates this clause either civil actions are taken against the lessee or the security deposit is withheld.

9. Registration

It is not necessary to register an agreement, but it is best practice to register an agreement. This is due to the fact that an agreement that is registered is solid evidence in case of any dispute between the parties. However, in modern law either the Transfer of Property Act or the Rent Control Act specifies a person to register an agreement with a witness. This has been held in the case of Salil Seth & Anr. vs. Arun Kumar & Anr. 

Therefore, this clause specifies the registration process like who should bear the registration cost, which act should be followed, etc.

10. Termination

Termination of an agreement means the end of the period mentioned in the agreement for the usage of the licensed property. A termination can be done for many reasons;

Termination for cause: Termination of an agreement can be for any particular cause, it may be due to personal reasons or using the property for an illegal purpose etc. 

Termination without cause: Sometimes termination can be without cause for e.g, sometimes due to misunderstanding between the parties there can be eviction without cause.

Automatic termination: This happens when the period in which the license was issued has come to termination or due to breach of the contract etc.

11. Dispute resolution

When a dispute arises between the parties, it is this clause that specifies how the resolution should be sort either by first by negotiation and if not resolved then moving to court or directly moving to court, about the jurisdiction under which this dispute comes under or which parties jurisdiction of the court has to be approached in case of dispute, which party will bear the court fees etc.

12. Signature

At the end of the agreement, it should be signed by the lessor, lessee and witness. The date of signing should be accompanied by the signature.

Format of a lease agreement between a bank and owner

Rental agreement

This agreement is made and executed on (date) at (place).

BETWEEN

(Name)   , Age: About________ Years, Occupation:___________ , PAN:__________ , UID:__________ . Residing at:_________________ 

HEREINAFTER called ‘the Licensor,

(Name)   , Age: About________ Years, Occupation:___________ , PAN:__________ , UID:__________ . Residing at:_________________ 

HEREINAFTER called the Licensee’

WHEREAS, ___( Summary describing why the contract has come into force)

Now therefore it is hereby agreed to, declared and recorded by and between the parties hereto as follows:-

Include all the clauses mentioned above and all the necessary clauses to the agreement. Starting from Term of Tenancy till Dispute resolution.

Conclusion

Therefore, in this article, we have analysed the concept of drafting, the meaning of lease agreement and a lease agreement between an owner and a bank. Also, we have discussed the difference between the lease and a license agreement. 

Also, from this article, we can understand that even though there are so many clauses that can be included, there are few clauses that are necessary for every lease agreement including a lease agreement with a bank. Finally, we have also presented a prototype of how a lease agreement between an owner and a bank appears. Therefore, by this article one can be clear with the concept of a lease agreement between an owner and a bank.

References

• https://www.lawordo.com/legal-drafting-rules-and-tips/
• https://www.nobroker.in/forum/how-to-rent-a-suitable-commercial-space-for-bank-and-atm-installation/
• Important Terms In A Lease Agreement
• Concept of lease and the rights and liabilities of a lessor and lessee

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